For Chesapeake, the primary profit in fracking comes not from selling the gas itself, but from buying and flipping the land that contains the gas. The company is now the largest leaseholder in the United States, owning the drilling rights to some 15 million acres – an area more than twice the size of Maryland. McClendon has financed this land grab with junk bonds and complex partnerships and future production deals, creating a highly leveraged, deeply indebted company that has more in common with Enron than ExxonMobil. As McClendon put it in a conference call with Wall Street analysts a few years ago, "I can assure you that buying leases for x and selling them for 5x or 10x is a lot more profitable than trying to produce gas at $5 or $6 per million cubic feet."

By now, some of you may have heard about or read the Rolling Stone magazine article released this week entitled “The Big Fracking Bubble: The Scam Behind the Gas Boom.” As our company’s VP with responsibility for communications, I think it's important that you know more about the events and activities that led to this article. Also, I have included below our specific responses to the portions of the article that were most egregious in their misrepresentations or inaccuracies of our company and industry.

When we were first contacted by Rolling Stone and looked at the writer’s prior work, blog posts, and tweets, we figured we’d never get a fair shake and suggested he talk to other industry groups to get a perspective on natural gas. But when he declared his intention to write a story focused on our company and Aubrey – with or without our cooperation – we decided that providing the full transparency that the media and our critics so often demand from our industry would potentially result in a more honest and fact-based story. Although our expectations for honesty and fairness were quite low, the writer failed to reach even that low bar.

Despite giving the writer access to our rig locations and briefings from senior executives over three days, Rolling Stone has published a story that recycles the same old debunked theories of a few short-positioned analysts, activist academics and publicity-seeking litigants that have mischaracterized our company and our industry for the past five years.

There is little new in this story and much that is either half true or just flat wrong. The writer clearly chose to ignore critical information and context that addressed the false allegations he chose to publish. Despite politely listening, he had no intention of reporting facts that would have showed Chesapeake to be the responsible operator and generous corporate citizen that we are and the vast majority of observers of our company know us to be. Some examples of Rolling Stone’s selective reporting are detailed below – these mistakes and omissions would be inexcusable from a responsible journalist, but coming from Rolling Stone they are perhaps more understandable.

Chesapeake believes in openness and the thoughtful engagement with all stakeholders in the communities where we operate. We stand by our position on the abundance of natural gas in the U.S., our success in drilling and recovering natural gas in an environmentally sensitive and safe manner, and the viability and success of our business model in generating attractive returns for shareholders.

While it is painful to read such misrepresentations about our industry, company and CEO, I hope you will take pride in knowing that when faced with an expected assault on our reputation, we didn’t just sit back and take it. We engaged fully and did so because we have such great confidence in the ultimate assessment that the truth will win out and the facts will speak for themselves. That opinion was buttressed by the fact that we have the most articulate, knowledgeable, and visionary CEO in the industry and an unequaled team of senior leadership at his side. We played it straight and transparent. We treated the reporter with respect and integrity. That he chose not to reciprocate does not diminish Chesapeake or our mission. It makes us more resolved to continue to prove the naysayers wrong. I hope you will find the analysis below to be of assistance to you.
..........
Writer’s Claim Reality
According to Arthur Berman, a respected energy consultant in Texas who has spent years studying the industry, Chesapeake and its lesser competitors resemble a Ponzi scheme, overhyping the promise of shale gas in an effort to recoup their huge investments in leases and drilling. When the wells don't pay off, the firms wind up scrambling to mask their financial troubles with convoluted off-book accounting methods.
The reality of at least 100 years’ worth of shale gas abundance has been supported by virtually every credible third-party expert, such as the U.S. Energy Information Administration, the Colorado School of Mines’ Potential Gas Committee, the Massachusetts Institute of Technology, Navigant Consulting and the largest energy companies in the world, among them being ExxonMobil, Shell, Chevron, ConocoPhillips, BP, Total, Statoil, CNOOC, Sinopec, Reliance, Repsol, BG, ENI and many others, not to mention every major independent in the U.S., Including Oxy, Anadarko, Apache, EOG, Devon, EnCana, Talisman and dozens more. The collective market cap of these energy leaders approaches $2 trillion – ask yourself: do I believe Rolling Stone and Arthur Berman or the world’s biggest and most successful energy companies?

For years, Mr. Berman has been underestimating natural gas reserves and the promise presented by the industry. Just take his ever changing position on the Haynesville Shale. In April 2009, Berman wrote that it was “difficult to imagine that the Haynesville Shale can become commercial.” Only two months later, in June , Berman had changed his tune, saying that “I now think that the Haynesville Shale reserve estimates that I presented previously were too low.” Still, in a 2010 article , Berman suggested the Haynesville numbers were “disappointing.” In March 2011, the Haynesville became the top producing natural gas field in the U.S., and now stands among the top ten producing fields in the entire world.

As far as accounting practices, Chesapeake follows full-cost accounting rules to the letter and routinely have our filings reviewed by the U.S. Securities and Exchange Commission, as is typical for any public company of our size. The same holds true for the rest of our industry – our reserve accounting techniques are strong and have stood the test of time for decades.

Like generations of energy kingpins before him, it would seem, McClendon's primary goal is not to solve America's energy problems, but to build a pipeline directly from your wallet into his.
Over the past three years alone, Chesapeake has distributed over $14 billion in payments to lease and royalty owners throughout the country.

The positive impact from natural gas goes well beyond the landowner. Chesapeake and its partners, for example, have invested almost $30 billion in the search for clean, abundant and affordable natural gas in just the past three years. As a result of Chesapeake's investments and those of others in our industry, Americans enjoy the cheapest electricity and natural gas prices in the industrialized world. And to the extent there is an economic recovery underway in the U.S., our company and our industry have been among the most important drivers of that recovery.

According to the U.S. Federal Reserve, natural gas prices, which are at a 10-year low this month, could save U.S. consumers almost $20 billion on home energy bills this year. Total savings to the U.S. economy from low natural gas prices compared to current natural gas prices in Europe and Asia, will likely exceed $250 billion in 2012 – that’s more than a $600 million daily stimulus to the U.S. economy!

Additionally, low natural gas prices have led to a renaissance in U.S. manufacturing jobs. A recent report from PricewaterhouseCoopers highlighted how affordable, domestic supplies of natural gas will save U.S. manufacturers more than $11 billion per year over the next decade, in addition to creating a million new jobs during that same period.

This affordable energy supply is also projected to increase disposable income for each household in the U.S. by as much as $2,000 per year.

The Oscar-nominated film Gasland exposed the dark underbelly of fracking, interviewing residents who could literally light their faucets on fire, thanks to the gas that had contaminated their drinking water.
Many aspects of Gasland have been repeatedly and thoroughly debunked by credible third party experts, but perhaps no area of the film has proven to be more disingenuous than the now infamous faucet lighting scene. After all, according to the Colorado Oil & Gas Conservation Commission (COGCC) , “Dissolved methane in well water appears to be biogenic [naturally occurring] in origin. … There are no indications of oil & gas related impacts to water well.”

[N]ew studies suggest that because of fugitive emissions of methane from wellheads and pipelines, natural gas may actually be no better than coal when it comes to global warming.
The reporter is referring to two papers produced by Cornell University Professors Robert Howarth and Anthony Ingraffea. Chesapeake shared numerous rebukes of the studies, including Carnegie Mellon University, the U.S. Department of Energy and one from a fellow Cornell Professor, Larry Cathles who concluded that the methane leakage rate promoted by the study was “unreasonably large and misleading.”

"The more land they acquire, the more capital they have to spend upfront," says Deborah Rogers, a former investment banker who learned just how precarious Chesapeake's business model was when she looked into the firm's financial statements after the company sunk wells near her property in Texas.
Rolling Stone refers to Deborah Rogers as a “former investment banker,” conveniently failing to mention that Ms. Rogers is also an active “steering committee member” of the Oil and Gas Accountability Project (OGAP), an activist group that considers natural gas to be a “filthy energy” source , and has vigorously worked in New York and Pennsylvania to institute bans on hydraulic fracturing.

He didn't point out any errors by the scientists or question their methodology. Instead, he went after their character, dismissing the [Duke] study as "more political science than physical science" and accusing them of having a bias against fossil fuels. " These guys," he tells me, "have invested their lives in the view that climate change is occurring, that fossil fuels are bad, and that natural gas is a fossil fuel, and therefore it's bad."
When I ask Avner Vengosh, a geochemistry professor who served as a lead author of the study, about McClendon's letter, he laughs lightly. "I have no agenda," he says. "I am a scientist. I report what the evidence I find tells me to report." He and his colleagues visited Chesapeake's headquarters in Oklahoma a few weeks before the study was finished and shared their results with the company. They also offered to consider any data that Chesapeake might have that would challenge their results. "They offered us nothing," says one scientist who attended the meeting. Remarkably the reporter has clearly ignored a large portion of the letter in question. After all, the second paragraph of Aubrey’s letter clearly shows the fallacy in the idea that the authors visited campus, and Chesapeake “offered us nothing” to challenge the report: “Chesapeake disputes the findings of Duke’s Nicholas School’s study entitled Methane Contamination of Drinking Water Accompanying Gas-Well Drilling and Hydraulic Fracturing. In April 2011, the authors of the study met with Chesapeake geologists, petrophysicists, environmental scientists and engineers and were shown summaries of over 7,000 data sets we have collected over the last few years in Pennsylvania which showed measureable methane in 22% of the water sources sampled prior to any of our drilling operations occurring, directly refuting the contents of the study.” No wonder the “scientist” quoted spoke anonymously.

Furthermore, the author chose to ignore the many respected voices who have spoken out against the Duke study including PA DEP Secretary Michael Krancer who believes the study was, in a word, biased.

“The bottom line is it was biased science from biased researchers,” Krancer says, addressing a luncheon audience during a recent conference in Pittsburgh.

Tom Darrah, a Duke geologist who has examined Vargson's well for a new study, finds that difficult to square with the facts. "Anyone who has seen the data I have and thinks this much methane in her well is from natural sources has their head in the sand," he says. A comparison of samples taken before and after drilling indicate the quality of the Vargson water to be virtually unchanged. The Vargson’s residential water well was equipped with a venting cap predating our operations. We have advised the Vargsons to clean and maintain their existing vent cap to better accommodate its intended function of venting the preexisting methane in their water well.

Last April, a Chesapeake well in Bradford County suffered a massive blowout. It was the onshore, natural gas version of what happened to BP in the Gulf two years ago: A wellhead flange failed, and toxic water gushed uncontrollably from the well for several days before workers were able to bring it under control. Seven families were evacuated from their homes as 10,000 gallons of fracking fluid spilled into surrounding pastures and streams. Pennsylvania fined the company $250,000 – the highest penalty allowed under state law. To compare this incident to the BP spill is both misleading and irresponsible. An independent report by SAIC concluded that: “Overall, few impacts were realized due to the release of fluids from the ATGAS well control incident. Those that did occur were localized, of short duration, and were confined to surface waters and shallow soils surrounding this site. There were no ecological impacts to Towanda Creek or the unnamed tributary; nor were any impacts noted to nearby or regional water wells or springs.”

The PADEP fine for the Atgas well control event in Bradford County was $123,000 and $67,000 in expense reimbursement. In its press release, the DEP noted: “Fluids from the well mixed with rainwater and entered a nearby unnamed tributary to Towanda Creek and Towanda Creek itself. On April 20, DEP detected levels of total dissolved solids, chlorides and barium that were higher than background levels at the mouth of the tributary, where it enters Towanda Creek. Subsequent testing further downstream and on the following days showed these levels returned to normal background levels.”
It's also impossible to know what chemicals are flowing out of the wells, or how toxic they are, because companies like Chesapeake are not required to disclose the compounds they use in fracking operations .

We don't know the chemicals that are involved," Vikas Kapil, chief medical officer at the National Center for Environmental Health, admitted at a recent conference. "We don't have a great handle on the toxicology of fracking chemicals." This claim is directly rebutted by Pennsylvania DEP: “Drilling companies must disclose the names of all chemicals to be stored and used at a drilling site … These plans contain copies of material safety data sheets for all chemicals … This information is on file with DEP and is available to landowners, local governments and emergency responders.” In addition, Chesapeake and other operators voluntarily disclose hydraulic fracturing components to a publicly available chemical disclosure registry at www.fracfocus.org . The author was told this repeatedly while meeting with Chesapeake.

I offer thanks to EID, whose documentation and correction of many of these errors were readily available to the Rolling Stone writer at www.energyindepth.org . In addition, I appreciate the blog published today by John Hanger, former Pennsylvania Department of Environmental Protection Secretary, which also rebuts the article: http://johnhanger.blogspot.com/2012/...ine-sadly.html

I also refer you to these quotes from our CEO that were included in the article and speak forcefully and clearly to the major energy issues and challenges facing our country:

• “Why are you [top environmentalists] not focused on the amount of oil runoff from parking lots when it rains? What about the billions of tons of agricultural chemicals that run off every day into streams and rivers? That's real pollution that kills real fish, and degrades a real environment. What's worse for Chesapeake Bay? Fertilizer runoff from poultry farms? Or fracking 200 miles away for which there is no evidence that one drop has ever gotten more than 100 yards away from a well site?"

• "If you believe in a world where the wind and the sun are going to produce all our power in the future, then we've disrupted that vision of the world. On the other hand, if you dream of a world where air is cleaner, where energy is half the price it was before and we're not exporting a million dollars a minute to OPEC or having to go fight wars in Afghanistan and Iraq, then you should embrace natural gas. That's what's so troubling to me – that people are willing to turn a blind eye to the enormous, well-known consequences of what we do today and not realize that this new path is the only affordable, scalable way to something else."

• "Does that mean we maximize the use of coal? That we fill the countryside with windmills and kill all the migratory birds and double electricity prices while we do it? What's the human cost to doubling electricity prices? What's the human benefit to halving them? I think those are enormously important questions that are never imposed at the same time people say, 'Fracking is bad.'"

Feel free to send this email outside of the company and as our CEO is fond of saying, “onward and upward”!

What's worse for Chesapeake Bay? Fertilizer runoff from poultry farms? Or fracking 200 miles away for which there is NO EVIDENCE that one drop has ever gotten more than 100 yards away from a well site?"

!

Leroy, PA blowout - 10,000 gallons ran across farmlands and into an unamed tributary of Towanda Creek. It seems 10,000 gallons may be slightly more than one drop. I guess according to Aubrey, that tributary and Towanda Creek both MAGICALLY stop flowing within 100 yards of the well site....

Think the point he was making was that it's probly 10,000 gallons of farm runoff every time we get a good rain, and if you look at the millions of acres of farm land in the chk bay watershed, if the whole area got rain at the same time, it could be 10,000 gal a hour running into streams.....probly more than that.

The Chesapeake Bay holds more than 18 trillion gallons of water.
The Bay receives about half its water volume from the Atlantic Ocean. The rest drains into the Bay from an enormous 64,000-square-mile watershed.
The Chesapeake Bay watershed includes parts of six states – Delaware, Maryland, New York, Pennsylvania, Virginia and West Virginia – and the entire District of Columbia.
About 150 streams, creeks and rivers drain to the Chesapeake Bay watershed.
Approximately 51 billion gallons of water flow into the Bay each day from its freshwater tributaries.
Collectively, the Chesapeake’s three largest rivers – the Susquehanna, Potomac and James rivers – provide more than 80 percent of the fresh water to the Bay.
<span style="font-weight: bold"> The Susquehanna River is the Bay’s largest river. It provides nearly 50 percent of the fresh water coming into the Bay – an average of 19 million gallons of water per minute. </span>

A bunch of this stuff is put out by the stock market "shorts". These are people who sell borrowed shares expecting(or wanting) the stock price to go down. Basically, they will smear the company to make it look bad. CHK is under heavy attack by the shorts. I own some CHK stock long at $20 and $21, so I am happy right now.
These are big companies run by ruthless businessmen and they do have pollution and compliance issues on a small scale. But, things are not as bad as those like Rolling Stone say. Things also are not as rosey as Buzz, TD, and others on the payroll say. Reality is someplace in the middle. The shale horizontal fracked wells are helping this country's energy equation greatly. But, the big companies do need watched.

The other thing that needs to be pointed out, is the fact that the person who wrote the CHK response was not Aubrey. That person used quotes Aubrey has made over the past few years.
The Atgas blow out is less than a year old, and Aubrey's quote most likely was made before the Atgas blow out.

Agree with most of what you said. To clarify, I am not on CHK payroll, but do own a company that does some work for them. I had the CHK response emailed to me from a couple diff chk employees I know. I meerly posted it for all to see the other side of a very biased article.

And if by "on the payroll", you were refering to getting royaltys...i have never got a royalty check...from any gas company.

If anyone is paying attention to the commercials from the oil and gas industry in print and electronic media; they have taken a turn. No longer ' we are drilling for energy and America', but more ' we are drilling responsibly with all concerns addressed.

The overall theme is, people are coming sown on this on many fronts. We have to come to agreement on how to go forward. Of course, the goal is for the responsible drilling message to win out.

I think that pretty much sums up many attitudes posted here and on other sites. People want the home produced energy. meanwhile we want clean air and water.

The hinge issues are how we get that clean air and water in relationship to the energy, price, and quality of life issues that go with it. The big issues are drilling responsibly and cleanly and holding the drilling / extraction companies to a workable and protective standard.

Is your position a short term gain - or a long term loss? Separate the issues.

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